Safaricom Likely to Borrow to Fund Ethiopia Telecom Bid

(Bloomberg) --

Safaricom Plc., weighing an offer for Ethiopia’s telecom business later this year, plans to take on debt to fund a joint bid by a consortium including parent Vodacom Group Ltd. and two other entities.

“We do know the investment to build the network in Ethiopia will be big,” Safaricom’s interim Chief Executive Officer Michael Joseph said in an interview at the company’s Nairobi headquarters. “So all of us will have to borrow to invest. The composition of the consortium will be on your willingness and your capability of taking on debt and your willingness to take a risk.”

The privatization of Ethiopian Telecommunications Corp. and issuance of two spectrum licenses has been delayed by elections that were pushed to August from May, according to Joseph. The government of Prime Minister Abiy Ahmed hasn’t yet provided guidance on the bidding process, including any limits on foreign ownership, he said.

East Africa’s biggest company had total borrowings of 4 billion shillings ($39.5 million) in 2019, and 36.3 billion shillings in undrawn bank facilities, according to its annual report. Revenue has been rising every year since 2003, when the company became profitable, according to data compiled by Bloomberg.

“Leverage makes sense for Safaricom considering their balance sheet size, so the cost of borrowing will be low,” Silha Rasugu, an analyst at EFG Hermes, said in response to emailed questions. “It also allows them to maintain dividend payout through the high capex cycle as they build a network in Ethiopia.”

Safaricom shares closed unchanged at 29.95 shillings after a seven-day losing streak on the Nairobi Securities Exchange.

Unlike Kenya, where Safaricom’s business became profitable within 3 1/2 years, Joseph said Ethiopia is “probably a 10-year journey.”

Regulatory Change

Opening up the telecommunications industry is part of a raft of reforms to liberalize Ethiopia’s economy as Abiy looks to increase foreign-capital inflows. Other carriers, including Orange SA and MTN Group Ltd., have expressed interest in expanding in the nation of more than 100 million people, which has a relatively low level of data penetration and internet access.

In December, Ethiopia’s investment-promotion agency released proposed regulations that would reserve banking and micro-finance for local investors, which would prevent Safaricom from providing such services via its M-Pesa payments platform.

“We cannot go in there as Safaricom and provide mobile-money services if we have to give it all away to somebody else just under some sort of technical support,” Joseph said. “We will if we have to, but in the end we want to have a license to provide those services, so the regulations will have to change.”

(Updates with analyst comment from fifth paragraph)

To contact the reporter on this story: Bella Genga in Nairobi at bgenga2@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Helen Nyambura

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